Google-Oracle Court Meeting May End Dispute Over Android

By Brian Womack, Aaron Ricadela and Karen Gullo -
Sep 19, 2011

Google Inc. and Oracle Corp. (ORCL) chief
executive officers are squared off in court today to resolve a
dispute that may pose the biggest threat to Google’s Android
mobile software, now running on more than 150 million devices.

Google’s Larry Page and Oracle’s Larry Ellison were ordered
to appear before a federal court magistrate in San Jose,
California, after tussling over patents for more than a year.
Oracle accused Google of infringing patents related to its Java
software, and a settlement means the companies avoid the risk of
having a jury decide whether Google owes royalties.

“It’s like Gorbachev and Reagan,” said Scott Daniels, a
lawyer with Westerman Hattori Daniels & Adrian LLP in
Washington. “The greatest chance of settling the case, of
ending the Cold War, to use the analogy, is to have the two
highest figures there.”

Oracle’s suit, filed in August 2010, may represent a bigger
menace to Google’s software than challenges from Apple Inc. (AAPL),
which has already won patent decisions against Android device
makers. In settlement talks, Page aims to avoid having to pay
Oracle licensing fees that analysts at Citigroup Inc. said could
be as high as $15 per device. That sum might slow the adoption
of the software, which Google gives away.

‘Productive Day’

“We are looking forward to a productive day,” Page said
as he arrived at the courthouse today.

Ellison is under pressure to wring profit from the
acquisition of Sun Microsystems Inc. and its Java software after
a report in June showed falling hardware sales, raising concern
that Redwood City, California-based Oracle may not be making
most of the $7.3 billion deal, which closed last year.

“We’ll do the best we can,” Ellison said today when he
got to court.

Jim Prosser, a spokesman for Mountain View, California-
based Google, said that the discussions, after more than 10
hours, had ended for the day. Prosser declined to comment
further on the talks. A second court conference is scheduled for
Sept. 21, according to court records.

Ellison, 67, has demonstrated his mettle as an opponent,
said Neil Herman, an analyst at Ticonderoga Securities. He
prevailed in 2009 after an almost two-year fight against Swiss
billionaire Ernesto Bertarelli over who can determine the
challenger in the America’s Cup yachting competition.

And after a trial where Ellison testified, a federal jury
awarded Oracle $1.3 billion in damages against rival SAP AG (SAP),
which it accused of stealing software. While a judge ruled this
month that the verdict was “grossly excessive,” Oracle vowed
to pursue “the full measure of damages” it believes are owed.

“Larry Ellison has been masterful historically in his
ability to hire good attorneys who give good advice and has been
quite successful in the legal battleground,” said Herman, who
is based in New York.

Ellison, who founded Oracle in 1977 and has been its CEO
since that year, is known for his blunt manner, Saffo said.
Within days of becoming CEO in April, Page shook up the
company’s leadership, promoting seven of his managers to senior
executive positions to streamline decision making.

On Page’s watch, Google has also bulked up on patents and
the attorneys it needs to defend against allegations of
infringement. The company agreed in August to buy Motorola
Mobility Holdings Ltd. for $12.5 billion, gaining more than
17,000 patents.

“The only difference between these two men is their age,
not their skills,” said Saffo, who said he holds some shares of
Google. “They are two well-matched CEOs.”

‘Wishful Thinking’

Both executives were “strongly” urged to attend today’s
session by U.S. District Judge William Alsup, who has been
overseeing the case, after opposing sides initially said they
would send lower-ranking executives.

Magistrate Judge Paul Grewal in San Jose will oversee
settlement talks. Grewal’s role is to play devil’s advocate to
each side, said Paul Janicke, a lawyer and professor who teaches
intellectual property law at University of Houston Law Center.

“You try to portray the worst case for each side --‘Here’s
what could happen to you’ -- so that they will see their down
side,” said Janicke, who has mediated patent disputes.

Oracle initially estimated that damages from allegedly
unauthorized use of Java technology would amount to as much as
$6.1 billion. Alsup threw out the tally, calling it “wishful
thinking,” according to a July 22 order.

In the same order Alsup also took Google to task for what
he called “Soviet-style negotiation” in suggesting that a
reasonable royalty would be at most $100 million.

Royalty Fees

Undeterred by the judge’s reproach, Ellison will likely ask
for an ongoing licensing fee for each device that sports Android
software, said Walter Pritchard, an analyst at Citibank Global
Markets. Oracle may seek anywhere from $5 to $15 per device, he
said. Richard Windsor, an analyst at Nomura Securities, said
Oracle may seek less than $1 a device.

Any amount would add up quickly. More than 550,000 Android
devices are activated each day, Page said last month. Introduced
in 2008, Android has become the leading software for
smartphones, with 43 percent of the market in the second
quarter, up from just 17 percent a year earlier, according to
Gartner Inc.

Java, the point of contention, has emerged as an industry
standard for writing business software and is widely used to
create Web-based applications. After buying Sun in January 2010,
Oracle said it would make more money from Java than its inventor
had. Sun collected just $220 million in Java-related revenue in
fiscal 2008.

Oracle’s Dilemma

Companies including Research In Motion Ltd. (RIMM), Amazon.com
Inc. and Sony Corp. already license Java. Oracle claims that
Google’s Android relies on technology that infringes Java
patents, and that Google should take a license.

Android has proven itself vulnerable in legal battles
before. Apple won a U.S. International Trade Commission ruling
in July in a patent-infringement case targeting HTC Corp. (2498)’s
Android-based mobile phones.

Oracle’s efforts could be more damaging to Android, said
Jack Gold, an analyst at J. Gold Associates LLC in Northborough,
Massachusetts.

“It strikes the foundation of Android,” Gold said. “What
Oracle is saying is, ‘No, Android is fundamentally flawed in
that it’s based on our invention and you’ve copied our
invention.’ It much more goes at the core of Android.”

Android Cost

A royalty fee would increase the cost of using Android and
may cause some handset makers to consider alternative operating
systems. Still, Google, with its $39.1 billion in cash and
short-term securities, could absorb some of the fee charged to
partners that make the devices, said Will Stofega, program
director at IDC. While giving away the software, Google aims to
make money through advertising that it puts on the smartphones.

If Oracle does score a victory against Google, it won’t
want to extract too high a fee, said Ray Valdes, an analyst with
Gartner. Android needs to be successful for Oracle to get any
royalties from the devices, he said.